Japanese Yen Declines as Weak Data Dampens Rate Hike Hopes
The Japanese yen weakened on Monday against a basket of major and secondary currencies, resuming its decline against the US dollar after a brief rebound on Friday. Investors continued to prefer the dollar, viewing it as an attractive opportunity in the foreign exchange market.
Data released on Monday showed Japan’s services sector slowed unexpectedly in September, adding to concerns about the health of the world’s fourth-largest economy. The weak economic signals reduced expectations for a rate hike at the Bank of Japan’s October meeting, as divisions persist among policymakers over the path of interest rates.
The USDJPY pair rose more than 0.2% to ¥158.17, up from ¥157.82, after hitting a low of ¥157.44. The yen had gained 0.15% against the dollar on Friday, supported by higher inflation data in Tokyo. However, it lost 0.35% against the dollar last week, marking its third consecutive weekly decline amid persistent concerns over the interest rate differential between Japan and the United States.
The US Dollar Index surged 0.6% to an 18-month high of 102.54, reflecting broad gains in the US currency against a basket of global currencies. Investors continued to favor the dollar due to elevated US Treasury yields and rising political risks in Europe and the Middle East.
Japan’s services Purchasing Managers’ Index fell to 51.3 in September, below expectations of 51.6 and down from 51.6 in August. The slowdown was attributed to weaker new orders and earthquake-related disruptions. The Bank of Japan’s September meeting revealed divisions among policymakers over the pace of monetary tightening, with the probability of a rate hike in October priced at around 40%.
Bank of Japan Deputy Governor Shinichi Uchida noted that AI-related demand had helped ease financial conditions and lift asset prices, while OCBC Bank’s Vasu Menon suggested the Bank of Japan’s stance was moderately hawkish over the medium term but not strong enough to trigger significant yen appreciation.